Is it a bubble or bull market?

Today, pundits speculate on what the next bubble might be. There is talk that the four-year rally in the stock market is a bubble, as well as debate on whether or not the bond market should be considered a bubble. Because credit has been so cheap for years, is the value of debt unsustainable?

The longer-term continuation chart for the 30-year Treasury bond grew from roughly 55 to 152 in 32 years. By that standard, it’s hardly a bubble. But with the cheap money and engineering by the Federal Reserve, we can hardly call this price rise a bubble built on mania. The Fed has attempted to keep rates low and prices high to stimulate the economy. It’s not implausible behavior considering how much damage was done to the economy in the financial crisis.

Many bull markets, such as the bond market bull from 1949-66, supported three Andrews’ channels with many validations by the time it peaked in 1966 (see “Bond power,” below). However the market never went parabolic, nor was the behavior in the 1950s predicting implausible behavior about the future. However, by the end of every bull market, there is a built-in confidence and optimism about the future, as there is at the end of every business cycle.

Hence in determining a mania, speed of the move and the size of the move go hand in hand. The Nasdaq went from 1343 to 5132 in 18 months. That’s a 282% leap. The bond market, on the other hand, grew 176% in 30 years. And we have the psychological aspect. The implausible factor must be present. Denial must be widespread. If these factors aren’t in place, the bubble is mostly likely a simple bull market. Trade accordingly.

Jeff Greenblatt is the author of “Breakthrough Strategies for Predicting Any Market,” editor of the “Fibonacci Forecaster,” director of Lucas Wave International LLC and has been a private trader for the past eight years.

Lucas Wave International (https://www.lucaswaveinternational.com) provides forecasts of financial markets via the Fibonacci Forecaster and other reports. The company provides coaching/seminars to teach traders around the world about this cutting edge methodology.